Peter Schiff: The Smart Money Wants Gold

On Friday’s episode of the Peter Schiff Show, Peter picks up where he last left off– President Trump’s wild trade policy. He touches on everything from tariff threats and the Fed’s inability to combat stagflation, to the dubious nature of job data and the absurdity of a U.S. sovereign wealth fund—all while warning investors about the dangers of missing out on a gold rally. 

Peter starts by summarizing recent trade negotiations and tariff reprieves, point out that all of this uncertainty was counterproductive and unnecessary from the start:

Trump could have made those phone calls in private. He could have basically said, ‘Hey, you need to bring more troops down to the border. And if you don’t do that, we’re gonna have these tariffs.’ And that all could have been negotiated quietly and nobody would have known. But I think Trump wanted to get that threat out there to be the tough guy and to show, hey, look, I threatened these tariffs and look what we got. We got these great concessions. Again, he could have threatened it privately and not publicly, but I also think more important, it was kind of like a trial balloon to see how the markets would react. 

He clarifies his position on tariffs. Peter’s not against tariffs per se, but he criticizes the rhetorical bait-and-switch that pro-tariff politicians use to garner support:

People say, ‘Hey, Peter, why are you criticizing these tariffs? Don’t you prefer tariffs to income taxes?’ And I do. I’m criticizing the way the tariffs are being portrayed and what their impact is gonna be because they’re being portrayed as a tax on Canada and Mexico. It’s not, it’s a tax on Americans who buy Mexican and Canadian goods. But actually, even if you don’t buy Mexican and Canadian goods, all the goods that you buy that compete with those goods are gonna be more expensive as a result of the tariffs. 

Turning to recent job figures, Peter questions the reliability of the government’s data, asserting that the numbers were skewed by dubious accounting and an influx of unauthorized labor:

That’s why I keep talking about the fact that the Fed says that it’s data dependent and it depends on this data, which is completely unreliable. None of it means anything when it comes to these jobs. The government doesn’t even know how many jobs were created. So many of these jobs are just made up based on the birth death model. … I wonder if that counts. If you kick out an illegal who’s employed, does that count as a job loss? I guess he’s not unemployed if he’s no longer in the country anymore.

On the topic of stagflation, Peter underscores the inherent dangers of an overly loose monetary policy—one that, in his view, is stoking inflation through an unsustainable expansion of credit:

So this is stagflation. But again, it shows you the Fed is much too loose. If the Fed were fighting inflation, credit wouldn’t be expanding. It would be contracting. Remember, inflation is not just an expansion of the money supply, it’s an expansion of credit because it’s money and credit that bids up prices. So consumers are buying with credit and that means they’re pushing up prices. What the Fed needs to do is contract credit, but it can’t do that because if it did that, we’d have the mother of all recessions. We’d have a financial crisis if the Fed reduced credit.

Peter comments on the recently proposed sovereign wealth fund, an idea he argues is reckless and absurd given America’s fiscal reality:

Are these guys serious? How can they even say this with a straight face? Now they say, well, Singapore has a sovereign wealth fund. Switzerland has a sovereign wealth fund. Norway has one. So why can’t America? Well, there’s a huge difference. These countries don’t have any debt. They have surpluses. Yes, they have government debt, but they’re sovereign wealth funds. Or in the case of Switzerland, Switzerland doesn’t have a sovereign wealth fund, but the Swiss National Bank has a balance sheet that’s almost a trillion dollars. Their total national debt of the Swiss government is about 20% of that. So Switzerland has a huge surplus. They don’t have a $36 trillion national debt. They have no national debt. They have national assets. They’re creditors. They’re not the world’s biggest debtor like America.

Peter closes with analysis of the gold market, which continues to reach new highs. He sees retail investors selling gold as a contrarian indicator. Big money is buying gold while individuals are foolishly selling:

Americans are selling their gold. I mean, what idiots, right? They should be buying, right? The central banks are buying. And I mentioned on that video that the delivery notices on the London Metal Exchange and the COMEX have shot up dramatically, meaning that people are taking delivery of these 100 ounce bars of gold. These are not mom and pop guys who are buying gold in 100 ounce bars. There’s some sophisticated money alongside central banks that are buying up all the gold they can get their hands on. …  So this is the best contrarian indicator I’ve ever seen that you’ve got all the smart money buying and all the dumb money selling. 

For more analysis of gold’s rally last week, check out Joel’s latest episode of the SchiffGold Gold Wrap Podcast.